RFP MONEY MAKEOVER: The Billion Peso Couple


The Billion Peso Couple

The high-earning, high-living couple does not have problems with accumulating wealth. Their problem is how to protect it

By Hazel Ann Acuña

Ernesto Gotanchan, 58, is a businessman and owner of many commercial and residential real estate properties while his wife Elizabeth, 40, works in an offshore bank as head of the corporate loans department. Ernesto has five children, the eldest—his 24 years old daughter—with his first wife, who passed away, and four sons with Elizabeth, with ages ranging from four to 13.

The couple has gross earnings of P5,000,000 a month, mostly from rentals of the commercial and residential properties of Ernesto. His total collections every month is a minimum of P4,500,000 from his properties in Makati, Mandaluyong, Quezon City, Laguna, Cavite, Tacloban and Cebu. Elizabeth earns a monthly salary of P500,000.

The Gotanchan family is living the good life, with a residence in Forbes Park in Makati, membership in the Yacht Club, and an almost unlimited budget for cars, clothes, and casinos.

They have a net worth of more than half a billion (see Table 1: Net Worth Statement).

Table 1: Net Worth Statement

ASSETS (in Php) Ernesto Elizabeth
Cash & bank accounts 10,000,000 5,000,000
Bonds, term deposits, and investment certificates 30,000,000 10,000,000
Receivables 500,000 100,000
Total Cash & Liquid Assets 40,500,000 15,100,000
Mutual funds 1,000,000 500,000
Stocks 5,000,000 1,000,000
Total Marketable Assets 6,000,000 1,500,000
Cash value of life insurance 10,000,000 5,000,000
Real estate investments (prime location only) 300,000,000 1,000,000
Business Interests 10,000,000 3,000,000
Total Long-Term Assets 320,000,000 9,000,000
Other (offshore, etc.) converted to peso 50,000,000 0
Personal residence 50,000,000 0
Recreational property 10,000,000 0
Vehicles 20,000,000 5,000,000
Recreational equipment 100,000 10,000
Household furnishings & equipment 5,000,000 1,000,000
Collectibles (art, stamps, coins, jewelry, etc.) 20,000,000 5,000,000
Total Personal Assets 155,100,000 11,010,000
TOTAL ASSETS 521,600,000 36,610,000
Charge accounts & credit cards 500,000 500,000
Line of credit/overdraft 5,000,000 1,000,000
Loans (car loan, etc.) 2,000,000 800,000
Unpaid bills 1,000,000 500,000
Taxes (Income tax or property tax) 3,000,000 1,000,000
Total Short-Term Debt 11,500,000 3,000,000
Other (charitable pledges, family obligations etc.) 5,000,000 1,000,000
Other mortgage loans 10,000,000 5,000,000
Total Long-Term Debt 15,000,000 6,000,000
TOTAL LIABILITIES 26,500,000 9,000,000
NET WORTH 495,100,000 27,610,000

Ernest’s income-generating real estate holdings include commercial buildings, apartments, condominium units, house and lots, warehouses, boarding houses, and vacation houses, constituting the bulk of their assets. Nevertheless, the couple own deposits, stocks, offshore investments, etc., managed by top private banks, which provide diversification across asset classes.

However, their non-real estate assets show that their risk tolerance is conservative. The couple mentioned that the types of investments they are comfortable with are low-risk investments because of their upbringing and fear of getting into scams.

They don’t have a problem with debt, since their debt-income ratio is manageable: 18.68 for Ernesto and 3.06 for Elizabeth.

Their idle funds are intended for their retirement. Ernesto wants to retire when he turns 65, preferably in Europe to enjoy the museums and art galleries in his old age. He also wants to transfer and donate a portion of his investments, particularly his properties that generate rental collections, to his only daughter who will be 31 by then. Elizabeth on the other hand wants to retire at 60 and spend her golden years donating to foundations and charities.

The high life

Ernesto’s eldest daughter, who lives on her own, gets an allowance of at least P50,000 a month and capital for her three businesses. His first wife died from heart disease. His younger children study in exclusive schools and are expected to take advanced degrees in London.

Indeed, they are living a charmed life. With their current monthly income of P3,400,000 net of taxes, they spend as much as P2,860,000, for an expense-income ratio of 0.90 (meaning they only save 10% of their income). While it’s a positive cash flow of P540,000, they obviously are living in the here and now (see Table 2: Cash Flow Analysis).

The rental income is substantial, but there’s always a risk of collection problems and bad debts, which is in fact something that is already happening at some their properties. This can affect their cash flow, and may even force them to dip into their savings.

One way to mitigate this risk is to set up an emergency fund equivalent to at least two months of expenses, which is around P68,640,000. The other thing they need to do is decrease their discretionary expenses, which is already 45% of their income after tax. Specifically, they should cut down on their casino spending and gift giving, which comprise 70% of the total discretionary expenses. Doing these will not affect their lifestyle at all and should bring down their discretionary expenses by 20%.


Monthly Income Annual Income
INCOME (in Php)
Average Rental Income 4,500,000 54,000,000
Salary 500,000 6,000,000
Bonuses, $10,000 @ 50 500,000
Gross Income 5,000,000 60,500,000
Less: Taxes @ 32% 1,600,000 19,360,000
Total Net Income 41,140,000
Fixed Expenses
Utilities 60,000 720,000
Food 500,000 6,000,000
Car/Toll 100,000 1,200,000
Medical 300,000 3,600,000
Household Wages 100,000 1,200,000
Education 50,000 600,000
Allowance 200,000 2,400,000
1,310,000 15,720,000
Discretionary Expenses
Travel 100,000 1,200,000
Clothing 100,000 1,200,000
Donations 50,000 600,000
Entertainment/Memberships 200,000 2,400,000
Hobbies/Sports/Casinos 1,000,000 12,000,000
Gifts 100,000 1,200,000
Sub-total 1,550,000 18,600,000
Total Expenses 2,860,000 37,200,000
Net Cash Flow 540,000 3,940,000


Total Monthly Income 3,400,000
Total Monthly Expenses 2,860,000
Net Cash Flow 540,000
Annual Expense-Income Ratio 0.90

If there’s a will

Cutting down on discretionary expenses and boosting their investments should generate a higher net cash flow and help achieve Ernesto’s goal to have a billion peso net worth when they retire. What they haven’t planned enough for what will happen to their wealth when they’re gone.

The couple has no will. They plan to establish one right away with the help of their lawyers. Ernesto wants to copy what her mother did, which was to donate her properties to him while she was still alive. Because of that she was able to guide and help manage the properties well.

Ernesto has a pre-nuptial agreement with Elizabeth, in order to protect the interest of his only daughter. He also mentioned that his Cebu and Tacloban properties are assets of her first wife and must be given to his daughter. Aside from that he wants 50% of all his properties in Luzon to be given to his daughter. The other 50% will be divided to Elizabeth and their four sons. Two thirds of his other investments will also go to his daughter and only 25% will be given to Elizabeth and his sons.

To prepare their estate plan, the various tasks were assigned to their accountant, lawyer, and financial advisor, who will coordinate with the property appraisals, make the computations, and file the required documents.

There are three options available to the couple: pass on their properties upon death, in which case they pay a hefty estate tax; donate their properties while they’re living, which is Ernesto’s preferred route; or transfer their properties to a family corporation.

The first step is to compute their net estate (see Table 3: Net Taxable Estate) and resulting estate tax. Assuming that they use up all their savings and investments for retirement, that leaves only their real estate properties worth P361,000,000 that their children can inherit. The estate tax due after allowable deductions amounts to P69,665,000.



Exclusive Properties:

Family Home

Other Exclusive Properties

Conjugal Properties:

Real Properties

Gross Estate


Ordinary Deductions

Funeral Expenses

Other Deductions

Total Conjugal Deductions

Special Deductions

Family Home

Standard Deductions

Medical Expenses

Net Estate

Less: ½ Share of the Surviving Spouse

Conjugal Property

Conjugal Deductions

Net Conjugal Estate

( 9,500,000 / 2 )

Net Taxable Estate























Net Estate 352,250,000
Less: 10,000,000/342,250,000
X 20% 68,450,000
Add: 1,215,000
Tax Due 69,665,000

The second option is to transfer their properties via donation, since the tax rates are lower (15% versus 20% for estate tax). They call also transfer over a number of years so that they can relinquish legal ownership gradually. Using a 10-year schedule of donations, based on P378,000,000 worth of properties, the couple will be able to save P17,925,000 in taxes, since they will pay a lower P51,740,000 in donor’s tax.


Year Amount Donated Rate Donor’s Tax
2008 37,800,000 15% 5,174,000
2009 37,800,000 15% 5,174,000
2010 37,800,000 15% 5,174,000
2011 37,800,000 15% 5,174,000
2012 37,800,000 15% 5,174,000
2013 37,800,000 15% 5,174,000
2014 37,800,000 15% 5,174,000
2015 37,800,000 15% 5,174,000
2016 37,800,000 15% 5,174,000
2017 37,800,000 15% 5,174,000
2018 37,800,000 15% 5,174,000
Total Donor’s Tax 51,740,000

The third option is through incorporation of assets. If Ernesto converts all his real estate properties worth P378,000,000 into shares of stocks with par value of P500,000, he will receive 756 shares. Transferring his assets into a corporation is tax-free at the time of transfer. However, it only delays the payment of taxes since his resulting shares of stocks will still have to be part of his net taxable estate.

So the best strategy is through donation since it will save the couple P17,925,000 in taxes. Since the donation will be spread over 10 years, they will be able to schedule the tax payments for minimal impact to their cash flow.

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